Patience required

Polish Zloty (EUR/PLN) – still waiting for a bigger move

Patience – that was the key word this past week. The Fed removed the word from its statement, which market participants take as a very high chance of an interest rate hike in June. The expected reaction to such a move? A strong appreciation of the dollar. Well, theory is just that – theory. The EUR/USD climbed like crazy on Wednesday night in order to correct its move to the levels before the Fed’s decision. Higher volatility on the major currency pair did not mean that emerging market currencies swung like crazy. Actually, the EUR/PLN remained quite stable and only on the USD/PLN there were chances for large gains (moves over 1000 pips after what Yellen said, or not said). As for the published macro data, it was more or less in line with expectations. CPI in January was 0.6% (yearly basis) while average wages in February climbed by 3.2% (also yearly basis). Although industrial production in February increased by 4.9%, other inflation-related macro data was worrisome – retail sales declined by 1.3% while PPI inflation stood at -2.7%. That is ok though, since we need to wait at least one quarter to see any effects of the lowered interest rates. As the MPC plans no other adjustments to monetary policy (as stated by various MPC members), the Polish Zloty will be under the influence of external factors in the upcoming weeks. 

On the daily chart we see that volatility on the EUR/PLN was low this past week. The currency pair traded in a 4.11 – 4.14 range. The stochastic oscillator does not provide a clear signal to where the market can go. We have to keep patient. Breaking the 4.11 support would trigger a move towards 4.09. This is a probable scenario as only very negative external factors (war on the east? ECB QE program failure?) could cause a dramatic depreciation of the Zloty. The first resistance the market needs to break in order to advance higher is 4.16. In this scenario, the next target will be 4.19. 


Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Knocking on heaven’s door

The hawkish Fed sent global markets to higher levels and emerging markets’ currencies, including the Hungarian Forint, continued their good performance this week. Hungarian bonds and shares also did well. The investment bank, J.P. Morgan, has sharply raised its target price for Hungary's OTP Bank to 6950 HUF and upgraded to "Overweight" its recommendation. Furthermore, Hungary’s Government Debt Management Agency (ÁKK) recorded an usually strong demand for its 10-year benchmark government bonds. Probably, those who are frightened by the recent broker scandals (Buda-Cash and Quaestor going bankrupt) now bought some government securities. Aware of all this facts, the Forint slid to 10 months highs against the Euro. Despite the patient days, the market is waiting for the National Bank of Hungary's interest rate decision. The Monetary Policy Council will meet next Tuesday and we are not sure if they will keep the base rate unchanged at 2.1%. What seems reasonable, the NBH has to decrease interest rates before the Fed hikes rates in the US.

From the technical perspective this is an optimal level for local vacationers to exchange. Quotes almost hit the 50% Fibo level on the weekly chart but the 100 EMA and the 303 level seems a tough support for Euro bulls. Putting it in a nutshell as we wrote on last week, before the NBH's decision uncertain "players" could pull up the quotes to the 310 level really fast. 


Pic.2 EUR/HUF W1 source: Metatrader

Romanian Leu (EUR/RON) – Finally a bit of (limited) action

After a time of introspection, the Leu decided to move following the Fed statement, largely seen as dovish and risk-assets positive at a first look. We have witnessed a range widening in the EUR/RON as a result of the stronger interest for the Leu, but no particularly strong follow-up. As the government moves ahead with a proposed fiscal stimulation plan, the market now tends to focus on the upside, with the ZEW sentiment index for Romania advancing by 4.1 points to 54.2. The market may need to brace a little for the upcoming NBR decision, that may ease through lower reserve requirements, but the true danger lies actually in Greece. Barring a surprising (or not) default and political volatility, EUR/RON may enlarge the range to the 4.4000 to 4.4450 area.

Technical analysis has been helpful on the break below 4.4315, and now a new small range within the large one seems to have been established. We may watch for a break of 4.4150 leading to 4.4000 while for the near term a tight 4.4150 to 4.4315 operation may be in order. First important resistance above that is at 4.4450 and then 4.4525.


Pic.3 EUR/RON D1 source: xStation